Public Bill Committee

[Mr. Peter Atkinson in the Chair]
EN 04 Consumer Focus

Peter Atkinson: Welcome. We know two of the panel, who also happen to be members of the Committee. It would be very helpful if you could, for the record, please introduce yourselves and particularly if the officials could give us some indication of their role.

Bronwen Northmore: I am Bronwen Northmore. I am head of the cleaner fossil fuels policy team in DECC, responsible for carbon capture and storage.

Rachel Crisp: I am Rachel Crisp, Energy Bill manager.

Joan Ruddock: I am Joan Ruddock, Minister of State for Energy and Climate Change. May I just say that Rachel was unable to get home last night and so had to stay here in order to be at this Committee today? So we are very glad to have her with us.

Mr. Kidney: I am David Kidney, the Parliamentary Under-Secretary of State at the Department of Energy and Climate Change.

Daron Walker: I am Daron Walker. I am the director of the fuel poverty review and responsible for part 2 of the Bill on social price support.

Peter Atkinson: Thank you very much indeed. Who can start off the questioning? Simon Hughes.

Q 226226

Simon Hughes: If we can start generally, as you would expect, Joan, please. We explored with others how much of the content of the Bill had come as a proposal from Ofgem. We were told that some of the ideas were Ofgem generated. Could you first tell us which of the other ideas are Government generated or come from any other sources? Are these parts in this Bill now because they are thought to be manageable, ring-fenced subjects that can get on to the statute book before an election in the spring, or were they in any event at the top of DECCs list of things it wanted to do? I guess the last bit of that is if there are other things that DECC has on the list but has left out, we would be glad to know that so we know they are coming down the track, even if not in this Bill.

Joan Ruddock: Thank you for that question. DECC and the predecessor group in the Department for Environment, Food and Rural Affairs have produced a substantial amount of legislation in the last couple of years. We have the Energy Act 2008 and the Climate Change Act 2008, so we have no shortage of legislative bases on which we can carry forward our programmes. Our programmes are extremely extensive, as I hope Committee members are aware, on the issues of both climate change and energy. So there is much that we already have as a basis for work.
There is much secondary legislation, as the hon. Gentleman will know, coming forward as a consequence of that primary legislation. We have much to do in getting on with it in terms of our low-carbon transition plan. Having said that, there were some crucial parts of the plan for which we needed to legislate. That is why we have this Energy Bill. We particularly require there to be a funding mechanism in order to support the carbon capture and storage programme, which is essential to reducing carbon emissions in this country and meeting our Climate Change Act targets. That is a primary reason for having this Bill before us.
In terms of timing, we needed the CCS incentive mechanism to be in place so that we could meet payments that might be required for the winner of the competition. So spring 2011 is a crucial landmark in that respect. In terms of the other aspects of the Bill, it is perfectly true that Ofgem came to us requesting that we legislate to do things that both it and we thought were necessary.
In addition, with our concern for fuel poverty, in response to representations that have been made and our experience of where the private companies have carried out their voluntary agreements, we believed that it was necessary to bring in a new social price support mechanism and that that too should come in to coincide with the end of the voluntary agreements in 2011. That is why, again, this is a priority for this Government. That is why these two measures, which derive specifically from Government as part of our essential attack on emissions and as part of our energy security plans, are in the Bill. They are and need to be priorities. I hope that when members of this Committee say, as they have been doing, Let us have this and that and something else in the Bill, they will have in mind the realities of this parliamentary Session. It is important that the Bills measures get through, because they are real priorities and I believe that they are shared priorities across the political spectrum.

Q 227

Simon Hughes: Minister, thank you. I have one supplementary question and one other thing by way of introduction. I will then leave you to colleagues. We know that there are announcements to be made by the Department in coming weeks; the Secretary of State referred to one about a national programme for home insulation during Question Time this morning in response to questions from me and others. Just so we are clear, will you confirm which announcements you already intend to make and whether any of them will potentially require legislation? I am thinking in particular about any national warm homes programmes and so on. I have seen statements of the announcements that are expected from the Department and you will have them in your grid. Are there any announcements that have legislative implications? Bluntly, we might think that some of those things, understanding time constraints, could be added to the Bill, and some of our amendments might be coming down the track by way of Government announcements in the next few weeks.

Joan Ruddock: We have presented a Bill containing our priorities that is short enough and that will have enough consensus, we hope, to get through in the time available to us. It is not our intention, therefore, to look to add things to the Bill; we have looked very carefully at what we require. However, as with all Bill processes, as we move through Committee, we are always willing to listen to what is being said. It is not impossible, as you know, Mr. Hughes, that we might not decide to do something and all agree that that is appropriate, but it is not something that we are planning to do.

Q 228

Simon Hughes: One last question. Quite a lot of the Bill, as we have discussed, is legislation that has secondary legislation trailed in it, not least in relation to fuel poverty. There have already been requests for the draft secondary legislation to be shared with the Committee before we move on to the next stage. Is that possible in all respects where it is referred to in the Bill? If not, what is the delay and why can we not look at the secondary legislation in draft?

Joan Ruddock: I have to say it is not our plan to produce the secondary legislation in draft, particularly because we have this very short time in which to work. We believe it is possible that the shape of the final Bill would influence what would be in the secondary legislation, and so do not believe it would be a proper use of time to be drafting the relevant statutory instruments at the moment. However, I recognise very much your interest and that of others on the Committee, and I will, as always, try to be as helpful as possible in answering detailed questions during the Committee stage of the Bill.
I also, of course, want to assure you that, as you are probably aware, there will be a full consultation on the detailed policies of the CCS initiative and on the social price support mechanism, that the regulations themselves are subject to affirmative resolution, and that we will be having a full consultation on the detail of the market power licence condition. I hope that the fact that we will have those very substantial consultations will help Committee members to appreciate that this is not something that we seek to avoid because we have something to hide, and that it makes administrative sense to proceed in this way.

Q 229

Tobias Ellwood: I am slightly dismayed at the way in which the Minister answered the last question, by saying that the relatively short Session that we now face is the reason why we have a pretty light Bill in front of us today. That said, it could be compensated by her agreeing to amendments that would beef up the Bill somewhat, and she is now suggesting that she is closing that door and that, If we want to get this through, we really need to agree what we have on the table, rather than advance anything further.
Is that not a little short-sighted, considering that there is very much a desire on both sides of the House to expedite this process of moving forward with carbon capture and storage? Surely we have a vehicle here in which to do that. If there is consensus, why can we not agree on things such as the size of the pipes, and on the introduction of exploratory works on looking at the inclusion of gas as well, rather than waiting for the next opportunity for a Bill to come around under another Government? That could be some time away.

Joan Ruddock: What I am trying to make clear is, first of all, that this is not a light Bill. These are very substantial measures, and they are very critical to the low-carbon transition that this country requires. Therefore, I do not think that it is light and that it needs additions simply to beef it up, as is being suggested. Where there may be some areas that we could agree on, the procedure is known to everyone in this room. If there are things that are agreed upon and they can go in, they do go in, but some of the issues that members of this Committee have already raised are not small measures about which there could be an easy consensus. Some of them are major issues that could not possibly be proceeded with in legislation, unless there had been proper consultation with all the stakeholders, for example.
No Minister could say at the outset, I am prepared to take anything at all around which we could agree, and put it in the Bill, because there are things that need to be done before legislation can be effectively drawn. In the time available, I doubt if there are any significant measures that could be added, because it would not be possible to do it properly.

Q 230

Tobias Ellwood: I hope that that is not the Ministers catch-all for some of the amendments that will be put forward to try to change things. I would hate to think that we are using the reasonsound though it may bethat we are coming to the end of the Parliament and therefore need to get this Bill through. We heard very clearly in the first sitting that had this exact Billthe identical wordingbeen put in front of us five years ago, we could have had a more substantial Bill. We would have had more time for the consultation that the Minister speaks about, and we could have been tackling some of the issues that are now becoming very serious indeed.

Joan Ruddock: I do not believe that any Government would have put a Bill of this nature before the House five years ago. We just were not developed in our thinking, and neither was anybody else. No Government in the world have put a Bill of this kind to their Parliament to raise a financing mechanism of this type for carbon capture and storage projects on the scale that we anticipate.

Tobias Ellwood: I invite the Minister to read the Hansard from the first sitting, when we had the representatives from the companies themselves, who said that they were in a position to take advantage of the funding schemes that are being promoted in the Bill: they could have been utilised five years ago. Those were the facts of the day. We are now faced with this very difficult, awkward situation, where we are running out of time and having to squeeze through a Bill that is not going to do enough. I do not say that it is not useful, but it is not as useful as it could be, considering the pressure we are under to get carbon capture and storage up and running.

Peter Atkinson: Order. We are developing a debate and we should be seeking information from the Ministers and the ministerial team. The Minister may want to respond, but perhaps we may then draw a line under the matter.

Joan Ruddock: I think we both need to read the Hansard record. I was in the room. I did not make the same interpretation.

Q 231

Charles Hendry: It is ironic, because when the Energy Act 2008 was being considered we tabled amendments that were defeated on exactly the same grounds being used now: that there was no need for them to be added. Now they are being introduced with a degree of urgency in the Ofgem remit on mandatory social tariffs. Sometimes things that are ruled out at the time have an urgency a little bit later.
I want to ask particularly about the levy. You will be aware that in the past we talked about a preference for funding carbon capture and storage through the receipts from the EU emissions trading scheme. We have been told that that money is not available: it has been spent. We have asked, and never been told, where it has been spent or allocated to. Could you give us that evidence? It would be very helpful for us in formulating our views in response to the Bill.

Joan Ruddock: I think I may have to refer to an official here, because I havent got the text in front of me, but I know that the receipting of the moneys is made in the Treasury in the budgetary process, and someone can probably provide us with the number of the line in the relevant document where that information can be found.

Rachel Crisp: I think Mr. Kidney has the document in front of him. The information is found in the Treasury Red Book.

Q 232

Charles Hendry: Could you refer to the page and paragraph?

Joan Ruddock: In a moment someone will find it for you.

Bronwen Northmore: It is the Other taxes and royalties line of table C6 in the Budget document, and table 2.9 of Budget 2009.

Q 233

Charles Hendry: Thank you very much. We also heard from Jeff Chapman a couple of days ago that the way in which the levy will be operated is a contract for difference. That is not set out anywhere in the legislation about the nature of it. Could you describe for us a bit more how it would work and how the contract for difference approach would work in practice?

Joan Ruddock: I could make some comments on this and ask officials to add to them, but the fact is that we are not at this point publishing the details of the levy, so anything we say at the moment is still part of a discussion. We have held in-depth discussions with all the relevant stakeholders and what we have agreed in principle is that there should be payment based on the supply and that the suppliers clearly would make that payment. It has been suggested that doing it on the kilowatt-hour basis is probably the fairest way, and that the way the payments are determined and disbursed would be on the basis of carbon abated.

Bronwen Northmore: The proposition of a contract for difference is that the Government would pay the difference between what we call a strike pricethe bid price for CO2 abated put in by the biddersand taking account of the carbon price, which will fluctuate. We dont want to undermine the carbon price in the EU emissions trading scheme. Therefore, a contract for difference allows that to flex. There was a degree of support in responses to the consultation. People thought that was a good approach.

Q 234

Charles Hendry: One more, if I may. Tony White and other witnesses talked about the importance of having an authority or organisation that would manage this processnot just the process of the levy, but the contracts for the pipelines and other parts of the processand be responsible for the scoping work, to see which sites might be able to cope with the sequestration facilities. Have you had a chance to consider the recommendations he made in that respect?

Joan Ruddock: First, those are valid points and, of course, we have had an opportunity to think about them. At the moment we believe that this is probably a premature discussion. We need to get ahead with our competition, with our support for CCS, to get the demonstrations on the ground and to have that learning process. In that learning process, we have said we will have a continuing rolling review and report by 2018. It is in that context that we should look at whether we need any kind of authority of this nature. It is very much a longer-term issue. I do not think that at this stage we would necessarily want to contemplate a regulated monopoly for carbon dioxide transport and so on.

Q 235

Paddy Tipping: Joan, you just mentioned the competition. It seems a long time since the Chancellor announced the competition. The intention is to have a plant up and running by 2014. Is that realistic? Is that time scale going to be achieved?

Joan Ruddock: During the evidence that has already been heard in Committee there was at least one companyScottishPowersaying that it could achieve 2014 and it is in the competition. Also in the competition is E.ON, which decided that it would not wish to invest in the new coal power station, which it wants to be part of the competition, early enough to secure the 2014 date. We are content that they both remain in the competition on that basis, because what we need is to see in the round where we are going to get the best value from the competition.
The company that wins will not necessarily have to have its project up and running for 2014, but it is achievable. If I remember rightly, E.ON may have spoken about 2017. As long as we are able to start when we have planned to in 2011and much preparation has gone ahead in the competition processwe will be content to see either of them win the competition and provide us with the basis of very useful work.

Q 236

Paddy Tipping: It is not much of a competition if there is only one competitor who can reach the finishing line at the appropriate date. Can I reinforce a point I made in questions this morning? There are real consequences for the indigenous coal industry in the UK. It can now compete against the economic test, but the environmental tests are very difficult. Unless we can burn coal cleanly, the UK coal industry is going to close down.
Let me reinforce the position at Harworth: when new reserves can be opened there is going to be a cost of £200 million. The company cannot afford that at the moment. It is talking to the European Investment Bank and has jumped many of the hurdles but the EIB is now saying, You have got to be able to burn this coal cleanly, and there aint nowhere to do it at the moment. What reassurance can you give to miners that I represent in Nottinghamshire?

Joan Ruddock: The reassurance is that we are seriously trying to get the financial mechanism in placethat we plan to do that, if we get this Bill through, by 2011. That will give confidence like nothing else to the companies. If they have that confidence, whoever wins the competition and whether we are talking about a few years here or there, we will be talking about quite a long-term project. Once the companies put themselves forward for projects 2 to 4, in addition to the competition, then that will give considerable confidence in a longer-term future than that contemplated to those who mine coal in this country.

Q 237

Brian Binley: I wish to continue from where Mr. Tipping left off. It could be construed from the scenario of the last two and a half or three years that the Government now recognise that they got it wrong in the first place and have decided to do something about it. If that is the case, I am perfectly happy because this is a very emerging technology. So let me lead on to what you are doing nowup to four demonstrationsbecause I think that is an important part of the scenario. Can I ask what response your early estimates suggest you might have for the demonstrations over and above the first? What you are doing about it to encourage a response?

Joan Ruddock: First of all, I do not accept in any way that we got it wrong.

Brian Binley: I am sure you wouldnt.

Joan Ruddock: Objectively I can assure you, as I spend a lot of my time travelling and talking to Ministers around the world, that our leadership on carbon capture and storage is very well recognised. We have led with the Carbon Sequestration Leadership Forum. We have worked with other countries. We have got the UK-China engagement. Therefore, I do not believe, in any way, that we have got this wrong. It has been difficult to get through this stage with the methodology we chose for the competition.
People might argue that we could have set the competition up differently, but I do not think that overall we have in any sense got this wrong. We have been progressing internationally as well as nationally. Let me just make it very clear that it is no longer up to four. It was up to four, but it has been confirmed that there will be the mechanism available and the funding base created to secure four projects.

Q 238

Brian Binley: Is it definitely four?

Joan Ruddock: Definitely four projects. We have also learned a lot through the competition process and we are now better placed to be able to select further projects on a much faster time scale, so I think that will reassure people. The Committee will have heard in the evidence sessions that there are companies that were previously interested themselves in the competition and then withdrew, but are still interested in principle and are still looking around.
We really take heart from the fact that two of the witnesses, if I recall correctly, were extremely positive about the funding mechanism. One called it the best in the world. This is what will really matter. Once people see that that opportunity is there, we are quite confident that people will be coming forward wanting to do CCS in the UK.

Q 239

Brian Binley: Will you allow me to press you a little further on a question that I raised this morning in the Chamber about the connection between CCS and oil? It is said that the window to exploit that possibility is not very wide. Can I ask what you are doing, because I have not seen a great deal about that potential connection in the stuff emanating from Government? Can you tell me what the latest position is on that and whether the Government are going to put more energy behind that possibility, bearing in mind the estimate that we could get another 15 per cent. out of the North sea if we move quickly?

Joan Ruddock: Is the suggestion that we are using the carbon

Brian Binley: Absolutely. To shove down

Joan Ruddock: Into the oil wells. As you probably know, the Canadians and the Norwegians in particular have been successful in doing that. We remain on very good terms with people in the oil industry. We are constantly in dialogue with them. We have an office in Aberdeen, which is there as an interface with the oil and gas industry. They will be able to take advantage of this, but it is a matter for detailed discussions with the industry itself. It does not require a legislative base.

Q 240

Brian Binley: Forgive me, I understand that you are mates with the industry and I am perfectly happy with that. I just want to know what the Government are doing to further this possibility, which will be considerably in the interests of this nation.

Joan Ruddock: Our role is to engage in and facilitate dialogue. It is for private companies themselves to decide whether they can use this mechanism and where they could use it. Some of that will be determined by which companies come forward to take advantage of becoming projects 2 to 4, as to their location and as to how quickly they might be able to provide the infrastructure that could then be used in the oil wells in the sort of time frame that you envisage. I do not think that that is for us to determine, except by way of good offices and constant dialogue.

Q 241

Phil Willis: I do not share the Ministers rosy picture of our position regarding CCS. In 2005 we had an opportunity to go ahead with the Peterhead project, which would have made us world leaders, when BP pulled out because of the Governments intransigence in not supporting the programme. We could have had a full demonstrator up and running and operating. I say that by way of comment.
The issue of enhanced oil recovery that Brian Binley raised is absolutely crucial. In terms of being able to get some certainty, the difficult issue, as the Minister will know with her friends in the oil industry, is that the gas and oil fields in the North sea have to be capped as soon as the usable oil and gas is taken out. There is then a short window of opportunity in which they can be opened up before the saline gets into them and they are ruined. If we do not meet those timelines, we are finished. I do not think that it is a matter of leaving it up to the oil companies, it is also a matter for Government policy. I make that point as a helpful suggestion rather than because I am trying to be difficult.
I am really interested in the competition and am delighted that we are now definitely going to have four funded projects. That is a very positive statement. The reality is that with the first demonstrator, on which we are about to make a decision, the whole pack of cards was stacked in favour of post-combustioncollecting CO2 after combustion. In reality, if you talk to the scientists and technologists, and to your friends in the oil and gas companies, they are particularly interested in not simply having a silo approach to this but in looking at creating opportunities for future economic growth. Pre-combustion is crucial. The Chinese are more interested in pre-combustion because they can then take the chemicals out and use them appropriately. They could also create a hydrogen facility and a hydrogen economy at the same time.
My understanding is that every one of the companies that were interested in pre-combustion, in terms of demonstrators, pulled out because the Government were not interested. What steps can the Minister take, including with this legislation, to encourage companies to come back in so that we get at least one, if not two, pre-combustion demonstrators? If we do not have those rival technologies, both of which are going to have global impacts, we may miss a massive opportunity and, particularly in terms of pre-combustion, we may miss the opportunity to create a world-leading hydrogen-producing economy.

Joan Ruddock: Let me respond first to the question on Peterhead and BP. There is a lot made of this and I do not think that it is really as people have suggested. This, first of all, was a gas project. We have concerned ourselves with coal as a priority. We have made it absolutely clear that the imperative, both in terms of UK current needs and, particularly, global needs and the continuing use of coal, is to get CCS technology developed in a way that benefits coal and makes it possible to have clean coal. That is our priority. BP withdrew for a variety of reasons, probably because it believed that it could not win the competition as it did not have a project that fitted all the Governments criteria. It had its own reasons for moving its capital investment.
Let us separate things. We are not concerning ourselves at this stage with gas; we are concerning ourselves only with coal. Having said that, we have said that we will do the four projects and, of those projects, we hope that two of them will be pre-combustion. I therefore think that your point is met entirely. We want to see the demonstration of both kinds. We thought it appropriate in the first competition to go for just one, namely the post-combustion. Despite the assertion that China is interested in pre-combustion, it has an enormous need for post-combustion, as does much of the rest of the world. In making post-combustion a priority, we were thinking very much in terms of global needs and global markets. We think that was the right decision, but we will ensure that we have the opportunity to make comparisons to develop both pre and post-combustion technologies.

Q 242

Michael Weir: I am deeply concerned about what the Minister has said about the competition and the time scale. If 2014 is going to slip back to 2017 or 2018, that is very significant and undermines our reliance on CCS meeting our targets. If we are not going to get the first demonstrator up and running until 2017 at the earliest, when are we likely to get the next four projects up and running? She has said that two of them will be pre-combustion. I remind you that, during his evidence on Tuesday, Professor Gibbins said that
we will have to fit a significant amount of natural gas plant with carbon capture and storage in the 2020s. To be able to plan for that, you need to have demonstrated the technology and to have the reference plants to look at and say, This is how its done.[Official Report, Energy Public Bill Committee, 5 January 2010; c. 44, Q94.]
If we are not having the first plant until 2017, that time scale becomes very tight indeed.

Joan Ruddock: First, I have not said that the timetable will slip.

Michael Weir: You have said that it may well do.

Joan Ruddock: No, I did not say that either. I said that the Committee had heard from two companies, one of which said, categorically, that it would meet the 2014 target. The other said that it was not continuing in the competition with 2014 as its target. It suggested that it would be later than that because of its investment plans as it has to build a whole new super-critical station. Those are the facts. We have not made the decision, so we cannot say that the 2014 timetable has slipped.
We still believe that there is enough going on through UK Government endeavours, through the EU and through projects around the world, some of which are supported by other national Governments, to make it possible to have commercial-scale CCS up and running by 2020. That is what we had always envisaged and we have further provision for retrofitting on a time scale that we have described as probably five years once proven. In no way do we believe that what we have always said is that CCS is not entirely doable.

Q 243

Tobias Ellwood: It is interesting that the Minister quoted Jeff Chapman from the Carbon Capture and Storage Association, who said that this was one of the best financial structures for CCS in the world. He went on to say that, had this Bill been put forward five years ago, technologies would have been no different and it would have been just as easy to introduce the Bill five years hence. That places his contribution in context.
My question concerns the urgency that I think the Minister agrees exists. There is an amendment to include gas in the Bill with coal. Given the discussions we have had and the delays that may occur in relation to coal, does it not make sense to introduce a view in relation to gas at this stage now, bearing it in mind that gas itself may be hit with delays in the future? It is appropriate to place it in the Bill now because there are no guidelines on how the entire project will be paid for. There is a levy, but we do not know how much it will cost, how it will be managed or what the timetable is. With those unfixed parameters and given the urgency of the need to consider gas as well as coal, I invite the Minister to think carefully about including one demonstrator power station for gas in addition to the four coal stations envisaged in the Bill.

Joan Ruddock: I have a different interpretation of the comments to which the hon. Gentleman referred. He talked about urgency, and because we are providing a funding system that will be the best in the world, we are creating a sense of urgency. The opportunity of the first call for projects 2 to 4 to emerge will come later this year, so there is no question of the competition having to run its course before the others come on stream. This an overlapping process, so we are in position already to get ahead with projects 2 to 4. Should we do gas this time? We think not. There is a whole raft of reasons why we believe we should not.

Q 244

Tobias Ellwood: Will the Minister quickly say what those reasons are? There is an amendment on the matter, and it would make sense to include gas now. It is, of course, cleaner than coal. It seems that we need to get the wheels working, given the delays that we are about to experience with coal.

Joan Ruddock: To repeat, there are no delays. I have just made it very clear that if we get the legislation through, we have a funding mechanism that could be started in the spring of next year. That is not a delay in the parliamentary process. I have just said that the first call on projects 2 to 4 will be later this year, so let us be absolutely clear: there is no delay. We are doing coal rather than gas primarily because coal is the most carbon-intensive of all fuels.

Tobias Ellwood: May I correct the Minister? I was not talking about doing coal and not gas, but saying that we should do both.

Joan Ruddock: We believe that we need this number of projectsof opportunitiesto secure coal in our mix for the future. Without four projects, we do not think there would be enough coal in our mix, because we have already legislated to say that we are not prepared to have unabated coal in future. No new power stations can come on stream with unabated coal; they will have to meet the conditions of partial CCS. We do not believe any company will do that without financial support from the Government. That is why we have put the mechanism in place.

Tobias Ellwood: That is completely separate from gas. We all agree with the Ministers argument about coal, but that is separate from, and exclusive of, our approach and the issue of when we start the ball rolling with gas.

Joan Ruddock: We deem four projects to be necessary. We do not think four new or retrofitted coal projects would go ahead without subsidy, so gas would have to be additional to that. Why do we not think we need gas now? First, because gas emissions are half those of coal, so we are not dealing with a fuel that is the absolute priority now. We are already prioritising for that reason, for energy security needs, and because coal is the fuel that is going to be used by so many developing countries on a huge scale in the future. That is why we are doing it. As for gas itself, the expert witnesses have said, and we believe, that gas requiring CCS will need to be fitted at a later date, in the 2020s.
It is not just what we can learn in this country; we need to learn from what is happening in other countries as well. We do not need to have everything in the UK to know how to do CCS on gas. We are expecting other countries to do thisI believe that Norway may be one of them. We are working extremely closely with the Norwegians, and we can learn from a project in Norway just as well as we will learn from a project in the UK.

Q 245

John Robertson: Perhaps we can put the record straight on what would have happened five years ago. My recollection, as somebody who has been chair of the nuclear energy group for five years, is that five years ago this Parliament would not have entertained anything to do with nuclear or coal, in any shape or form. So I think, Minister, you are quite right in what you saythat five years ago we would not have gone down that road of investing money in that. The Opposition would, of course, have taken that precisely as their point of viewthat it would be a waste of money dealing with those things. You are correct in what you say.
May I go back to the competition? I have some problems with the competition. We have two companies that have gone down the competition road and are still involved. They have done that. Why do you think that all the other companies have said, No, were pulling out.?

Joan Ruddock: Three, I think, of the original four companies, some of which were in consortiums, have appeared already before this Committee. They have given their own reasons, and very sound reasons they were. I made some notes at the time, and I think that EDF told us it was involved in other European projects and that its focus in the UK was on nuclearthat was its choice. It told us it was going to do some CCS elsewhere, but that it is definitely focused on nuclear, which we agree is an essential part of the energy mix in this country. I have to say that my impression of RWEs evidence was that it appears to want everybody else to get on and try it out, and the company will then do it when it is ready. That was just a matter of its investment choice, and nothing to do with what the Government were doing. Scottish and Southern was, I think, completely supportive of what we are doing and made it clear that it continued to be interested, even though it had withdrawn from the competition. Centrica, for reasons I think we can understand, wanted a gas plant.
Those companies all had sound reasons, which I heard myself, but the most important thing, as I have said a number of times in this Committee, is that we now have not only that competitionit is still going on and will produce a resultbut fundamentally important is that we have the opportunity for another three companies or consortiums to come forward and take advantage of a funding mechanism that should give them the confidence to go ahead. We are confident that enough companies are interested.

Q 246

John Robertson: Professor Jon Gibbins from Edinburgh university said roughly what you are saying. His point was they would have their eyes on the results of the initial successes of the competition. My question is: what criteria will the people who come along afterwards have to meet? What kind of competition rulesif there are competition ruleswill there be? I asked that question yesterday. Will there be no rules? Do we just pick a company because we like it and then go ahead with it? Surely there has to be some kind of competition to produce what will be best for the nation.

Joan Ruddock: I shall ask Bronwen to give you the benefit of the work that she has been doing on this.

Bronwen Northmore: Yes, thank you. There will need to be some form of competitive process. We have been on a learning curve with the first competition. We do not propose to hold a procurement exercise similar to the first competition but, equally, these are large projectsthey are not R and D projects and you cannot do it on the basis of an R and D-type grant with a relatively hands-off type of award. You have to find a middle way forward.
The consultation document that we launched and the Government responded to in November contained a set of criteria for the sort of thing that we thought we might want to look at. Obviously, peoples bids for the price per tonne of CO2 abated will be an important criterion, but knowledge transfer and the type of projectwe may want to look at clustersare also important.

Q 247

John Robertson: While you are looking at that, Jeff Chapman from CCS Association mentioned the Alberta consultation. Have you looked at that?

Bronwen Northmore: We are in touch with the Canadians. They ran a very short processI think they are probably at the other end of the spectrum, in that it was very short indeedbut we will look at their experience of getting projects up and running. They have done their bidding process, so they have winners of the competition, but the projects have not yet started and there is a lot between allocating the money and getting a project up and running.

Q 248

John Robertson: It strikes me that the two companies that are still in the competition are going to be out of pocket a lot more than the other companies that come in at the back, so what is in it for them?

Bronwen Northmore: Well, they are in the running for funding for their front-end engineering designFEEDstage. It was announced in the Budget that £90 million was available to fund FEED studies, so one or more of them will get that funding. Also, because of the procurement, they are likely to get stage payments during the plant construction process, whereas projects 2 to 4 will be paid on the output of the completed plant. There is quite a different payment profile between the two.

Q 249

John Robertson: Okay. My last question on that subject is: does that mean that they will get that money over and above what everybody else is going to get in the future projects? I am worried that companies that have stuck by the rules and gone through the competition might, in the long term, be more out of pocket than the companies that are sitting on the sidelines waiting to see what the results are, which will get the benefit of the hard work done by somebody else.

Joan Ruddock: There are advantages, which Bronwen has outlined, of being in the competition, because those companies will get the money for the initial engineering studies and they will get stage payments. They will get a better cash flow in the process of getting their project up and running than the others will, because the others will have to do work and then claim money on the basis of what they have achieved. Of course, if companies that are looking to build new power stations beyond the four projects come forward, we will expect them to do it with their own money. At a later stage, they will have the benefit of the information gathered and by then, we hope, there will be a better carbon price, so it will become competitive and payable. Yes, companies will get advantage from learning, but I do not think that there will be much of a disadvantage either way, because we will be providing quite a generous subsidy.

John Robertson: It affects the Scottish companiesthat is neither here nor there, of course.

Peter Atkinson: Quite a lot of Committee members are trying to catch my eye. Charles Hendry has been waiting a long time.

Q 250

Charles Hendry: Can you point us to where in the Bill four projects are mentioned?

Joan Ruddock: It is not in the Bill.

Q 251

Charles Hendry: Exactly. It is a complete red herring. There may be four, but the Bill is not tied into four. The Bill could be for one; it could be for 10; it could be for 20. It is non-specific. It simply provides a power to provide a levy and that levy will remain in place until the legislationif the Bill gets Royal Assentis repealed. To say that the provision is only for coal and should only be for coal is to tie future Administrations into a technology that will be overtaken by other technologies in due course. It must surely make sense to have a power now, even if it is just a power to extend the ability from dealing just with coal-fired power stations to dealing with other technologies as well.

Joan Ruddock: I imagine that the proposal will be properly debated in Committee. I suggest that that is the place to debate an amendment.

Charles Hendry: I hope that the Minister will reflect on that over the weekend.

Joan Ruddock: I will indeed.

Q 252

Charles Hendry: It would mean that a new Act of Parliament would not be necessary when gas really comes on to the agenda.
The other issue is that the references to coal-fired generation could exclude pre-combustion technologies. With pre-combustion, you are creating a gas and then burning it. The definition in the Bill refers to coal burning. I think that the definition in the Bill could preclude the development of pre-combustion technologies.

Joan Ruddock: That is not our understanding, but we will look very carefully at what you have just said.

Q 253

Phil Willis: It would also preclude oxy-fuel if we went down that line. Could I pick up John Robertsons excellent point about drawing out the advantages to the first two companies[Interruption.] You can pay me later for that. I was particularly interested in what will happen to the intellectual property. Clearly, the Government are going to invest £90 million to help international companies with their design work, which will then be used for projects all over the world. How do we tie in a share of that intellectual property? In terms of the first one or four or more demonstrator plants which are going to be funded by the consumer paying more through a levy, how do we tie in the intellectual property that emerges through those demonstrator plants, so that UK plc gets the benefit?

Joan Ruddock: That is a very good question. It needs to be made very clear that just because the Government are facilitating the incentive mechanism and the levy, it does not mean that there will be any kind of nationalisation

Phil Willis: I am not saying that.

Joan Ruddock: No. I just want to make it clear that the Government are not seeking to own the intellectual property.

Phil Willis: None of it?

Joan Ruddock: No. We do not seek to own it and we do not seek to buy it in that sense. What we do seek is an appropriate sharing of information. We believe that that is not as difficult as it might seem. Companies have a real interest in being able to learn and share information. Clearly the Government will be the recipient of much of that information, so it may be a little difficult to deal with, but intellectual property, as you know very well, is owned by those who create it. This is a matter of international law. I am just going to ask the officials whether there is anything they want to add. This is a very tricky area and I know you would want us to be very clear, but that is my understanding of our approach.

Bronwen Northmore: There is an issue associated with knowledge transfer and knowledge sharing in relation to CCS demonstrations. The Government take the view that it is extremely important that we and other countries work towards maximum sharing, so that CCS can be deployed and rolled out as fast as possible to tackle climate change.

Q 254

Judy Mallaber: May I seek clarity before we get to the Committee debate on one of the other issues that was raised in the evidence sessions on Tuesday? Green Alliance and WWF were very positive, saying that the Bill and the approach it sets out is a tremendous step forward, and they were very encouraging of the development. They also argued strongly that it should be complemented by emissions performance standardsclearly a matter that will come back again. They were careful not to be pinned down to any specific timetable for laying down emissions standards, because they obviously also appreciated some of the difficulties. For example, you do not want to block off current core production by getting it wrong. They were quite clear that there should at least be a framework and a requirement to bring in those standards as a complement to the development of CCS and other technologies. I would be interested in your comments on whether, in principle, that is something you support. Are there technical or timetabling arguments against, or is it an idea that has some favour?

Joan Ruddock: It is an idea that has some favour, in principle. We understand very well why organisations have consistently put it forward. However, we think it is probably something for the future, not for now. That is because we believe it is necessary to get carbon capture and storage technology up and running, for people to understand it and to know the extent of emissions abatement that can occur. That is the crucial thing we need to do during, as we envisage it, the next decade. If we tried to bring in an emissions performance standard at the same time, we might end up with companies deciding that they would not invest in CCSthat having an EPS would be a disadvantage and would deter them from investment in CCS, from taking up the competitions and the opportunity for the Governments subsidy to be made available to them. That is the concern.
We do not just think by ourselves; we go out and consult. We have widely consulted on this question and have got back an entirely mixed response. There are some who think it undermines the EU ETS, there are some who, like us, think it is premature, and there are some who are in favour; but there is absolutely no consensus among stakeholders that it is appropriate to bring in an EPS at this stage. We went further and consulted with the independent Committee on Climate Change and asked its opinion, which is that it is something to be considered for the future but not to be brought forward at this time.

Q 255

Judy Mallaber: What is the timetable for introducing that kind of provision? Would it not potentially be to the advantage of those engaged in an early stage in the technology? They would be ahead of the game in making sure they could meet whatever standards there wereand not just for coal-fired stations but across the board. I would have thought they would be the ones that would be most pleased to have it because they would be most likely to be there at the beginning, meeting the necessary standards.

Joan Ruddock: Well, that is where the controversy lies. As I said, there is no consensus among stakeholders. You mentioned gas, and of course that would be absolutely critical, if having an EPS now were to choke off investment in new gas facilities. That would have real implications for energy security. We have to be extremely cautious about saying that this should be brought in now. That is critical to how we deal with emissions. Primarily, our emissions are dealt with through the EU ETS which is a major determinant of emissions from power supply. We also, of course, already have our carbon budgets, which entirely constrain our economy anyway. Companies know they are carbon-constrained through both of those processes. It is our view, having done the consultations including with the CCC, that at the moment this will be premature and not necessary. Of course, however, we have the rolling review that we are putting in place alongside the whole CCS programme. We will be able, through that process, to ask ourselves the question at any stage whether it would be appropriate to bring in an additional mechanism, and that could be an EPS.

Q 256

Phil Willis: Could we publish these consultations, Mr. Atkinson, because I have not seen the results? Are they all in there?

Joan Ruddock: Yes, absolutely.

Q 257

Simon Hughes: There was a controversy as to whether any emission performance standard could breach EU law. My understanding is that it will not and cannot. Can you just confirm that that is the advice given to Government?

Joan Ruddock: That is the advice given to Government. It is also worth noting that of course we do not require new primary legislation to bring in an EPS. We have existing legislation through which we could bring in such a measure.

Q 258

Simon Hughes: Just one other question, following up Judy Mallabers question. If the Government were to be absolute about their view about the next generation of coal-fired power stations and said that there will be no new coal-fired power stations unless there is complete CCS from the beginning, wouldnt that give the industry much more certainty about what the next generation of power stations would be, on the one hand, but also incentivise people to be much more committed to the project, to the competition and all the other things because they know it has to succeed? It is a bit like when the exhaust rules were changed for cars, and the automotive industry knew that down the track they would have to comply in so many years time, and they all did it. They may have found it difficult, or demanding or challenging. Wouldnt it be a better Government policy, consistent with the Bill, to say that the next generation absolutely has to be, from the beginning, not retrofitted but CCS compliant?

Joan Ruddock: My answer is no. I do not think that the analogy works. If you look at the automotive industry, everyone is producing cars and trucks so everyone has to do it. In the case of companies involved in the energy field, they do not have to build coal-fired power stations. The proposition that you make would be a means of stopping all investment in new coal-fired stations. Nobody would build new ones. We are now having to provide an incentive in order to help people to build new coal-fired stations with around a quarter of their capacity being CCS. If we were to require 100 per cent. from the outset, the new coal-fired stations would not be built in this country. Virtually all our coal-fired stations would be out of action by 2025 at the latest. We would have no coal in our energy mix in the future. That is something that we are not prepared to accept. There is also, it has to be said, a small possibility that CCS in its full construction, from capture through to transport through to storage, will not work on a commercial scale. The proposition would be, You must do something that you dont even know would work at all and that is just not feasible.

Simon Hughes: Maybe we should move on, Chairman.

Peter Atkinson: We have done carbon capture and storage very thoroughly for over an hour. We will move on to the question of mandatory social tariffs.

Q 259

Natascha Engel: I will rattle through the questions.
A couple of things on social tariffs. The Bill moves us from having a voluntary arrangement whereby energy companies offer a social tariff, to putting it on a statutory footing. The obvious question that we have asked other panellists before is, Does that mean that the voluntary system has failed? But really, why do we need to do this and what will be the benefit of moving it on to a statutory footing?

Mr. Kidney: If Parliament approves it, we will from 2011 have a statutory, mandatory scheme. Between 2008 and when we do that, we have had a voluntary scheme, and before that we had neither. Each one is arguably a step forward in the right direction. That is my answer to the question about whether the statutory scheme shows that the voluntary one has failed. No, it has not. Each one is a step along the path towards something that we all think is desirable.
Under the voluntary scheme, let us remember that we secured the agreement of the energy companies to spend £100 million in year one, £125 million in year two and £150 million in year three. We have had Ofgems report on the first year, where the energy companies noticeably over-performedthey spent £157 millionwith the result that over a million customer accounts are benefitting from social tariffs. That is a success of the scheme on its own terms.
Why is it beneficial to move to a mandatory scheme?

Q 260

Natascha Engel: Just before you move on. Yes, that is better than nothing, but it still only represents 0.5 per cent. of the energy companies turnover. That is not a huge amount. Does the statutory footing mean that the energy companies will be spending more money, in terms of their annual turnover, on social tariffs?

Mr. Kidney: Moving on to the statutory scheme, we are going to require energy companies to pay more money towards social price support than they do under the voluntary agreement. That will be roughly a doubling from the beginning. We will therefore help more people. In that sense, it is much more money. That also answers your question about why there is a benefit to a mandatory scheme. First, it is now getting money, so there ought to be some parliamentary oversight of it. Equally, along with oversight comes direction, and we are able to direct where the money goes in order, I hope, to get the best value and the best effect, in terms of tackling fuel poverty, from it.

Q 261

Natascha Engel: How will you direct that?

Mr. Kidney: This is where the Bill, this debate and the consultation that we are planning for the summer come in. Our current thinking is that we would direct help first of all towards a kernel group of people who we think are the top priority. We have said that we think that is the oldest, poorest pensioners. Then there will be a broader groupwe have heard during the debate with witnesses which groups might be in that one. And thirdly, on the legacy spend, we would grandfather into the mandatory scheme the existing voluntary arrangements that the energy companies make with their customers.

Q 262

Natascha Engel: In terms of the kernel group, are you planning on extending the size of that most vulnerable group to includewe have asked the companies this alreadypeople with chronic illnesses, such as cancer sufferers? By their very nature, they have probably seen a vast drop in their income, certainly in their quality of life. Is that in your calculations?

Mr. Kidney: I do not think that the value of consultation is delay, dither and putting things off. It is about checking your thinking with the people who have an interest to see what they think. It is also to make the most of the great expertise that lots of people outside Government have. To answer your question, I want to make it clear that we are going to consult and our mind is open to the result of the consultation. Our thinking is that the kernel group will be those older, poorer pensioners, and that the kinds of classes that you are talking about would be in the second, broader group that I described.
The reason we choose that group is that every measure and target to find people in fuel poverty is an approximation, but we think that the most accurate is older, poorer pensioners. We find that, in over half of the households that are in fuel poverty, there is somebody aged 60 or above. Also, it is a relatively stable group. People in fuel poverty move in and out according to their income and the price and energy efficiency of their home, but older, poorer pensioners are quite a stable group. Another issue that should be pressing on all of our minds in this weather is that they are a group who are greatly at risk of excess winter deaths. That is why we make them our top priority.

Q 263

Simon Hughes: We all know from constituency casework over the years that the real issue for most consumers is knowing what the cheapest offer is, and being able to turn to it and use it. Do Ministers therefore accept that whatever else there may be, the key mechanism should be to require the companies to make whatever their cheapest offer is at any one time available to all these people, in the categories that are the vulnerable, starting with the group you have just described? Is the starting point going to be, Youve got to make the cheapest offer? If the answer to that is yes, which I hope it is, is it still the Governments view that there will have to be additional financial support to subsidise for the fuel-poor below what the companies can produce as their cheapest offer?

Mr. Kidney: First of all, to be clear, the answer to your first question is not yes; it is no, in terms of our thinking. Let me go on to explain that. I think you are asking about two separate issues. The first one is how we deliver this social price support. One way would be to legislate, to say, Thou shalt give thy lowest social tariff to this group of people. That is not what we are proposing. What we are proposing, again subject to the consultation, is, Thou shalt knock off everybodys electricity bill this amount of money. We would state the amount of money that they must knock off everybodys bill.
We choose that, first, because of the problems you describe, about cutting through all the verbiage about which is the best tariff. Secondly, the electricity bill is something that is common to nearly every energy consumer in the country, whereas some social tariffs would be for gas users and that is completely irrelevant to people who are off the gas grid. Thirdly, it is transparent and clear, so nobody is in any doubt what the benefit is and we do not have to worry about the information that is given alongside it, and it is least likely to disrupt what is a competitive market among the suppliers in seeking customers. We heard the concern from some of the witnesses that if they were required to offer their best tariff to this group of people, they frankly would not be very enthusiastic about trying to find such people.
My answer to your question is that at the moment our mechanism is straightforward: money off the electricity bill for everybody. That still does not mean that I say you are asking a poor question about information to customers. They should know what is the best tariff for them in their personal circumstances. Ofgem has come to that conclusion just as we have, and the new licence condition that you have described, which starts this month, will require the energy companies to give all their customers an annual statement, each and every year starting this year, in which they must state what the tariff is that the person receiving the bill is on and how that compares with the standard charge they make for people on their monthly direct debits, which is effectively the most common offer that they make of a low tariff to everybody.

Q 264

Simon Hughes: May I pursue that? I understand what you say and I am grateful for it, but the risk is that if the offer is money off your electricity bill, there are still going to be quite a lot of people, particularly the elderly, the very elderly, the not very well and so on, who can have the information sent through their letterbox but will actually stay with what they have got because that is what people do. A lot of people have not been used to changing their electricity supplier. They have British Gas or whatever, and that is what they stay with. The public purse, or the industry, will then be subsidising tariffs that could be lower. People could be on the lower tariff but they have not changed to it and will still be on a higher tariff and will be getting something off that. Surely we need to make sure that we bring everybody down to the lowest tariff, before we give them money back, otherwise we are wasting money somewhere in the system, spending money that need not be spent.

Mr. Kidney: The consultation will test whether that opinion is a stronger one that the one I am putting forward today. I just want to challenge you in this way: what we find from the voluntary agreement is that for some people on the lowest tariff available from their energy companyremember Ofgem has required what companies call their social tariff to be their lowest onethe benefit is about £20, compared to what another tariff would have been. We are talking about a much more substantial payment than that, towards everybodys electricity bill. I think that the actual common benefit, which they will not have to claimthey will get itis much better, but I still say that does not excuse us from needing to make sure consumers get the right information to make the best choice for themselves in the energy that they buy.

Q 265

Paddy Tipping: I was wondering whether you could describe your thinking about the arrangement for the kernel group, as you described it, and for winter fuel payments. All pensioners get winter fuel payments but, as I understand it, only 12 per cent. of them are in fuel poverty. What is the relationship between winter fuel payments and social tariffs into the future?

Mr. Kidney: None. As I have said to you, our thinking is that we want to target this benefit at the most vulnerable pensioners. We intendas best we can, given the paucity of direct information that we have on these issuesto make sure that the people who get this benefit are the ones who really need it. As to targeting, a lot of work has been done that. Some of it will be tied to benefits, such as pension credit, that older pensioners receive. If this years data-matching pilot shows that we can find all the right people and then they automatically get their benefit, that would be a great step forward that we would then use in the future in this scheme. I think Charles Hendry asked about the issue this morning: going forward, if it is successful, we would like to extend it to other areas, targeting other groups who ought to get this benefit in the future. Charles was quite right that Parliament requires Governments to get primary legislative approval for each data-matching that we do in the future.

Q 266

Phil Willis: Can I take you back to the discussion you had with Simon Hughes? If you are having a flat-rate rebate in terms of your billand I understand it is a simple way of dealing with thatthe reality is that people who are in the greatest fuel poverty are often people, as we heard earlier today, who do not have access to internet accounts or bank accounts. They are paying the highest at the moment, particularly in terms of prepayment meters. You may well get a poor customer who has a bill of £1,000 because they have to pay the highest tariff. At the same time, somebody who is using the same units of electricity could have a bill of £400. There is that difference between the two tariffs. A flat-rate premium of a £100 rebate would mean 10 per cent. off the top-rate tariff and 25 per cent. off the lower tariff. I do not understand your logic there unless I have missed something. I am a simple creature.

Mr. Kidney: I think you are making the wrong assumption that the lowest tariff a company charges would dramatically reduce those peoples bills. I have just given the example to Simon Hughes that for some people the difference from being on the lowest tariff with their supplier is only £20 a year. It is not a huge benefit to begin with.

Q 267

Phil Willis: With respect, Minister, you know that generally speaking the poorest people are paying the highest tariffs. Prepayment meters for the poorest people are incredibly expensive, compared with the tariffs that Simon Hughes gets in his luxury flat in London.

Mr. Kidney: I want to come to that aspect because that is not precisely the tariff issue. It is about the charge that the energy companies make for the way in which people pay their bills. There is no doubt that Ofgems energy retail market probe demonstrated that some customers were being charged far more, simply for the way in which they paid their bills, be it a prepayment meter or by sending a cheque every quarter rather than by direct debit. They were being charged far more than any objective justification of the extra costs involved in administering a prepayment meter or taking a cheque rather than a direct debit.
Since September, there has been a licence condition in place outlawing that kind of activity, and I would like to think that a lot of that problem is now behind us. There remains an issue, which Simon Hughes has raised with witnesses before now, about the differential that there is between paying by direct debit and the other ways of paying. That goes far beyond tackling fuel poverty. It is a debate that we will probably have in answer to an amendment that Simon Hughes has tabled for discussion in Committee and which I will be answering.

Peter Atkinson: Order. Can I just say that the panel has had an hour and a half, which is about all that they were expecting? The first witness did not come, however, so we can go on a bit. I am sure that the panel will not mind as there are a few more questions to be put. I ask those who want to take part to bring their questions fairly quickly to a close, but I would not want to deprive the Committee of the opportunity of having Mike Weir and John Robertson asking their questions. Mike Weir.

Q 268

Michael Weir: We have heard conflicting evidence or opinion on how the new duties on Ofgem to take account of carbon emissions and security of supply will affect the way in which it works. What is your opinion? What do you expect will change with Ofgem as a result of these new duties?

Joan Ruddock: What a whole number of witnesses told you has confirmed to me that we were right in the way that we approached this. We all acknowledge that Ofgem has moved substantially in recent times. I think that some of that movement is down to the creation of DECC and the dynamism of our Secretary of State. [Hon. Members: Hear, hear.] We have seen considerable movement which has correctly tackled issues both of security of supply and of climate change and the need to reduce emissions.
What we are doing here is really consolidating that movement and ensuring that it continues. We are also making it very clear that this is the right way forward and this is what Ofgem needs to do in terms of its thinking on how it carries out its primary duty to consumers. Therefore it can and cannotdepending on which way you gobe challenged on what it is doing. So it is very much clearer than the external pressures being put on it, which I acknowledge we have done as Government. It is much clearer what its duty is and what it has to take into account and so the sort of movement that we have seen in recent times will continue and be legitimised. You heard that from a whole host of witnesses from both companies and the NGO sector.

Q 269

Charles Hendry: There has always been the sense that the Government will set the framework and Ofgem, as a regulator, will then implement it. There is a potential confusion here in that as Ofgems remit is changed, it can then decide the relative importance of affordability, security of supply and low carbon. How does one, with the measures that the Government have put in place, ensure that the Secretary of State, rather than an unaccountable regulator, has primacy in deciding policy?

Joan Ruddock: We do not share your interpretation, Charles. We really think that it is very clear where our policy direction and our duties lie as a Government in terms of making policy. What we have done here is not to change the remit, but to clarify it. This is not a change. Ofgems primary duty remains the protection of existing and future consumers. This is quite subtle, but nonetheless rather important. I am reassured by the evidence on that that we have heard in this Committee, both from private companies and the voluntary sector.

Q 270

Charles Hendry: There was much less agreement among witnesses about the nature of clause 27, and many people did not understand why it was necessary; they were concerned that it was something that perhaps Ofgem should be doing, even if it was not doing it properly. I sense that this would be the appropriate home for these sorts of measures for looking after the interests of disadvantaged customers. Could you take us a bit more clearly through your thinking as to why you felt it necessary to do this, particularly, to pick up the point made by Rupert Steele, that it does seem to include an element where, if the evidence isnt there, the Secretary of State can make whatever assumptions he or she wants?

Joan Ruddock: I am glad to pass that really tricky question to my colleague.

Mr. Kidney: It is a backstop power that has been there since the Utilities Act 2000. Our thinking in bringing it back to Parliaments attention now is this: the probe that I mentioned drew attention to this group of customers who were benefiting from deals from their suppliers through dual supply. They were getting their gas and electricity from one company and were benefiting in the sense that other electricity consumers were effectively paying a subsidy for the gas they consumed. That would be particularly disadvantageous to people off the main gas grid, because they never could benefit from the subsidy for their gas consumption. Ofgem has stepped in with a licence condition to prevent that from happening in the future.
Our legal advice at the time was that, because it was dual fuel users of gas and electricity, the power in the Utilities Act 2000, which put this backstop in the Electricity Act 1989 for the privatised electricity utilities and in the Gas Act 1986 for the privatised gas utilities, might not cover this suggestion. That is why Sarah Harrison told you that this is about plugging a gap. That is all it is about in terms of making sure that we can rely on the power if we ever were to use it.
It has not been used since 2000, so it is legitimate to ask why it should be on the statute book at all. I elicited from Sarah Harrison, however, why it is useful. The energy companies have to give their agreement to those very licence-condition changes that Ofgem used to stop the abuse of the electricity customers. If they do not give their agreement, it goes to a process through the Competition Commission. Sarah Harrison confirmed that it is quite useful for the energy companies to know, when they decide whether to give their agreement or not, that, if they withhold it, the Secretary of State might step in with something worse. I think it is a useful backstop power and I am happy to give an assurance on the record that it is intended as a backstop for those kinds of situations.

Q 271

Charles Hendry: The assurance on the record has no legal force whatever, does it? It is interesting to compare this with what Joan said at the beginning of our discussionsthat the Bill is focusing only on the things that are urgent and must be done now because there is a pressing need for them, and that other things are being kept out of the Bill because of that. But this is a power that has not been used so far and we have no idea when it might ever be used. That seems slightly out of kilter with what we were told earlier.

Mr. Kidney: I am not flagging this up as a particularly significant power. It is filling a gap in previous legislation while we have the legislative opportunity. I do not make much of it if you do not make much of it. There is a legal precedent in Pepper v. Hart that if there is some doubt about the interpretation of legislation, the judges are entitled to look at what people said on the record. To that extent, I hope that what I have said is useful.

Q 272

John Robertson: I got into quite a discussion with all the groups the other day about the market power licence condition. Rupert Steele from ScottishPower took one side and felt that it was going to attack investment, while Ofgem thought that it was a really good idea and thoroughly supported the Bill. Is this primarily to help the consumer and will it stop investment in the way that Rupert Steele claimed?

Joan Ruddock: It is most certainly there in order to help the consumer. Ofgem has made a calculation, which is only an estimate, that it may have cost the consumer £125 million in excess charges of certain kinds that have been levied as a result of balancing mechanisms. It has thought for a long time that there were abuses in the system and that it was necessary to deal with them. When Ofgem has investigated with a view to taking action, it has found it very difficult indeed to mount a case in which it had confidence when using the existing rules. That is not to suggest that Ofgem is making it up that something is happening; it has good evidence that something is happening, but it is not able to address it effectively in the interest of consumers at present. That is why we are putting the market power licence condition into the Bill.
We think that it will act as a deterrentnot to investment, but to what is perhaps going beyond normal commercial practice. We are not denying that there can be commercial advantages because of constraints and that this is how a market operates, but it is suggested to us, and Ofgem seriously believes, that charges have been made and practices have been undertaken that are not in the best interests of consumers.
You ask about deterring investment. We do not believe that there is reason to think that a narrowly drawn licence of this kind is going to deter investment. I think a number of the witnesses from whom we heard specifically said that they were not against it, provided that it was properly targeted and narrowly drawn. I think ScottishPower may have been rather against it in general, but others were not.
Now, is that a Scottish thing? At the moment the constraints are more significant between England and Scotland. That is perfectly true, but because of how renewables in particular are going to develop, we expect new constraints to occur. They might be in different parts of the UK and there might be other things that crop up that will need addressing. That is why we are doing it.

Q 273

Simon Hughes: I want to come back to those not on the gas main, who get calor gas, LPG or fuel oil. Apart from those who are going to be the fuel-poor, what will be the beneficial outcome of the Bill for them? What will this do to bring down theclearly, on averagemuch higher bills of those people from the high levels there are at the moment?

Mr. Kidney: The only direct benefit from this Bill is the money off their electricity account, which, clearly, most people will have, even if they are off the gas grid.

Simon Hughes: If they are fuel-poor?

Mr. Kidney: If they are fuel-poor.

Simon Hughes: But they are average punters out in the country not on the gas main?

Mr. Kidney: This Bill is not directly attacking those other issues. Some that are relevant are: the increase in the grant maximum for the warm front; the slight changes to the rules we will be making on CERT for its extension to 2012; the benefit that the renewable heat incentive, and indeed feed-in tariffs, will bring to people to drive developments of renewable technologies in those areas; and the micro-generation strategy update, which we will bring forward this year. A number of things are going to happen in the next 12 months or so that are relevant to them, but they are not in the Bill.

Q 274

Simon Hughes: This is my last question. If you wanted to, could you put a provision in the Bill, or support an amendment to the Bill, that could reduce the number of tariffs any utility company could offer to, say, 10 per company? Could you do that and, if you could, why dont you?

Mr. Kidney: I do not know legally about the power to tell companies how to run their businesses to that degree; I would need to check on that. I would be very reluctant to consider an amendment such as that although, as the Departments consumer champion, I am all in favour of simplicity of charges and good information for customers so that they can understand them. However, I am very hesitant about the actual assertion you made.
Just before I finish, Mr. Atkinson, could I just clarify two things? One is that I did not specifically answer Charles Hendrys point about clause 27(7). I just want to say that the assumptions and calculations referred to in that subsection are, of course, governed by the purpose of the clause. That purpose is to determine whether there have been disadvantaged customers and, if so, what to tell the energy companies to do to take away that disadvantage. So it is limited to that respect, but I am sure that we will debate that directly in Committee.
The other point is that I said that people would automatically receive the money off their electricity bill if they were fuel-poor in the kernel group. That was on the assumption that data matching works, so I think I ought to make it clear that if it did not work I would have to find some other solution. It is possible that there would be a small number of people, even if data matching does work, who would not get caught by that, but who would still be eligible if only we knew about them. There would still be a facility for them to apply and get the money.

Q 275

Charles Hendry: Are you able to tell us whether the Government will be tabling any amendments to the Bill, ahead of when we meet on Tuesday?

Joan Ruddock: I think[Interruption.] I am being assured. Of course we would have to know now, this minute, if we were bringing anything ahead of Tuesday. I can assure you, Charles, that we are not tabling any amendments to the Bill ahead of Tuesday.

Peter Atkinson: Order. Can I thank the panel? I am sure that the Committee will think that this has been a very useful occasion, so we are grateful for all your time. I am sure that you are all pleased that we are finishing earlier.

Ordered, That further consideration be now adjourned.(Steve McCabe.)

Adjourned till Tuesday 12 January at half-past Ten oclock.